Wage debate a proxy for deeper economic woes

Originally published October 26, 2013 at 9:00 pm
Updated October 27, 2013 at 11:12 am

I was on a panel last week with Nick Hanauer and John Carlson sponsored by the Stanford Graduate School of Business. The topic: Rising income inequality in America.

Naturally, the question of raising the minimum wage to $15 came up and the debate nicely framed the issue. It is on the ballot in SeaTac and has been backed by Seattle mayoral candidates Mike McGinn and Ed Murray.

Hanauer, a venture capitalist, entrepreneur and political activist who supports the raise, called the current wage “insane, ineffective and immoral.”

Although people can easily worry about the potential consequences of the higher minimum wage, “they cannot conceptualize the massive benefit that would accrue from workers being able to buy more stuff.”

If workers don’t make enough money, companies don’t have customers, however much the low-price, low-wage model appears to benefit consumers in the short-term. Henry Ford understood this more than a century ago.

In addition, “taxpayers would pay less to keep these workers out of desperate poverty.”

According to a report from scholars at the University of California at Berkeley, low paid workers in the fast-food industry require almost $7 billion a year in public assistance, including $96 million in Washington.

More than half of the nation’s 1.8 million “core” fast-food workers rely on food stamps, the Children’s Health Insurance Program and Medicaid. If there are takers in this economy, it is the rich companies that offload these costs onto the public.

Carlson, a talk-show host on KVI radio who leans to the right, made the point that many individual restaurants are owned by franchisees, not the big companies booking record profits.

He used the owner of his favorite Subway as an example. “If there’s a problem with the drain, she has to pay to fix it,” he said. “She gets paid last.”

He also warned of unintended consequences of a higher minimum wage: Employers might cut staff and hours, automate tasks and provide fewer opportunities for the least skilled and youngest workers.

Points to both. They killed.

If the minimum wage had kept pace with rising productivity, it would have been $21.72 an hour in 2012, according to a report from the Center for Economic and Policy Research. If it incorporated half the productivity increase, it would stand at $15.34.

The federal minimum wage is $7.25 per hour. Washington state, at $9.19, has the highest minimum wage in the nation.

However you come down on the issue, it is a proxy for problems in the economy that go deeper than the continuing jobs crisis.

The U.S. has the largest percentage of workers in low-wage jobs among the advanced nations in the Organization for Economic Co-operation and Development (OECD).

Labor’s share of national income is the lowest since records began in the late 1940s and commenced a dramatic decline in 2001. Last year, the typical household made about the same as the typical household of a quarter of a century ago.

Inequality has reached levels not seen since the Gilded Age of the late 19th century. It is much wider than in other advanced nations that have also been affected by globalization.

The six heirs to the Wal-Mart fortune hold a combined wealth of about $90 billion. This is equivalent to the wealth of the bottom 30 percent of Americans.

Most wages have been stagnant for years, and the middle- and lower-income quintiles have been nearly flat since the late 1970s. Worse, economic mobility has slowed dramatically.

Those with only high-school degrees or less are doing worst. But a good college education can saddle the graduate with $100,000 in debt.

Liberals and many conservatives agree this state of affairs doesn’t just affect families and sustainability of the economy, but also endangers our social compact and democracy. They disagree about the causes. Is it union-busting, poorly funded schools, tax cuts and bad trade deals? Is it offshoring, highly concentrated industries and an investor class whose interests no longer align with that of average Americans? Or is it bad decisions by individuals and poor incentives and government policies that perpetuate an underclass?

I know this much: We are not the country I grew up in, a genuine land of opportunity with a jobs engine and middle class that was the envy of the world.

In that America, I grew up poor and worked my way up to the top of my field. I didn’t do it alone, but thanks to what Martin Luther King Jr. called “an inescapable network of mutuality.”

Hanauer talked about thinking of the economy as an ecosystem. The goal should be a positive feedback loop, a “virtuous cycle” where everyone can prosper and get ahead, even as some inequality is inevitable.